PESTEL Analysis EXPLAINED | B2U | Business To You

Summary

This video script introduces PESTEL analysis, a vital tool for mapping an organization's external environment, focusing on macro factors like political, economic, social, technological, environmental, and legal influences. Host Lars explains the difference between internal and external factors, emphasizing PESTEL's role in assessing the general environment's impact on business. He details each factor's significance and suggests using weighted averages to evaluate potential markets, recommending resources for data collection.

Takeaways

• 📌 PESTEL analysis is a tool for mapping out the external environment of an organization, focusing on macro-environmental factors.
• 🏢 The analysis does not consider internal factors of the company, such as organizational structure, culture, or management.
• 🔍 It also excludes task environment factors like competitors, suppliers, and customers, which interact directly with the company.
• 🌐 PESTEL stands for Political, Economic, Social, Technological, Environmental, and Legal factors, covering a broad view of the general environment.
• 🏛️ Political factors include government policies, stability, corruption, trade policies, and their impact on education, infrastructure, and health sectors.
• 💰 Economic factors encompass economic growth, exchange rates, inflation, interest rates, consumer income, and unemployment, affecting consumer purchasing power.
• 👥 Social factors involve demographic characteristics, norms, values, and attitudes that can influence market targeting and workforce conditions.
• 🛠️ Technological factors relate to innovations, regulations, and market awareness that may affect industry operations and product development.
• 🌳 Environmental factors include ecological aspects like resource scarcity, pollution, and climate change, impacting company operations and offerings.
• 📜 Legal factors involve specific laws like discrimination, antitrust, employment, consumer protection, and health and safety regulations.
• 📊 To apply PESTEL, calculate weighted averages of factors relevant to your business to assess and compare different markets or countries.
• 🔎 Data for PESTEL factors can be found on various websites that quantify these aspects per country, aiding in informed business decisions.

Q & A

What is the primary goal of PESTEL analysis?

The primary goal of PESTEL analysis is to help analyze the external environment of an organization, which is especially useful when starting a new business or entering a foreign market or a different industry.

What does the acronym PESTEL stand for?

PESTEL stands for Political, Economic, Social, Technological, Environmental, and Legal factors, which together make up an exhaustive list of the general environment.

How does PESTEL analysis differ from examining the task environment?

PESTEL analysis focuses on macro-environmental factors that have a one-way effect on a company, unlike the task environment which includes direct interactions with competitors, suppliers, distributors, customers, and strategic partners.

What are some examples of political factors that PESTEL analysis might consider?

Examples of political factors include government policy, political stability or instability, corruption, foreign trade policies, tax policies, and regulations affecting the education system, infrastructure, and health sector.

How do economic factors impact a company according to PESTEL analysis?

Economic factors such as economic growth, exchange rates, inflation rates, interest rates, disposable income of consumers, and unemployment rates can have a direct or indirect long-term impact on a company by affecting the purchasing power of consumers and the demand and supply in the economy.

What demographic characteristics does the social dimension of PESTEL analysis include?

The social dimension includes demographic characteristics such as population growth rate, age distribution, income levels, and attitudes towards careers, health, lifestyle, and cultural barriers.

Why are technological factors important in PESTEL analysis?

Technological factors are important because they pertain to innovations in technology and the regulations surrounding it, which may affect the operation of an industry in the market favorably or unfavorably, influencing decisions such as entering certain industries or launching products.

What is the significance of environmental factors in the context of PESTEL analysis?

Environmental factors are significant as they address ecological aspects such as weather, climate, environmental offsets, and climate change, reflecting the well-being of the planet and the growing awareness of potential impacts of climate change on how companies operate.

How do legal factors overlap with political factors in PESTEL analysis?

Legal factors, while overlapping with political factors, include more specific laws such as discrimination laws, antitrust laws, employment laws, consumer protection laws, copyright and patent laws, and health and safety laws.

What is a practical approach to applying PESTEL analysis for a company considering entering a new market?

A practical approach is to calculate weighted averages of the available options by selecting PESTEL factors most important to the business, assigning grades for each factor per country, and then comparing the weighted averages to determine the most attractive market.

Where can one find quantified data for the factors mentioned in PESTEL analysis?

Quantified data for the factors can be found on various helpful websites that measure these factors per country, such as the Corruption Perception Index for corruption.

Outlines

00:00

📚 Introduction to PESTEL Analysis

In this introductory paragraph, Lars welcomes viewers to a new episode of 'Business - You' and introduces the PESTEL analysis as a tool for mapping out the external environment of an organization. He emphasizes its utility for new businesses, foreign markets, or different industries. Lars explains that PESTEL focuses on macro-environmental factors, which have a one-way effect on a company, unlike the task environment which includes direct interactions like competitors, suppliers, and customers. He also clarifies that PESTEL is not about any external factor but rather the broader environmental factors that can significantly impact a company. The acronym PESTEL stands for Political, Economic, Social, Technological, Environmental, and Legal factors, which together form a comprehensive list for analyzing the general environment.

05:01

🌐 Detailed Breakdown of PESTEL Factors

This paragraph delves into the specifics of each PESTEL factor. Political factors encompass government interventions, policies, and their influence on business operations, including education, infrastructure, and health regulations. Economic factors include growth, exchange rates, inflation, interest rates, consumer income, and unemployment, which affect consumer purchasing power and company pricing strategies. Social factors cover demographic trends, cultural norms, and values, which are crucial for market targeting and understanding the local workforce. Technological factors involve innovation, automation, R&D, and market awareness of technology, which can influence industry decisions and prevent investments in soon-to-be-obsolete technologies. Environmental factors, now more prominent due to climate change and resource scarcity, include ecological aspects and corporate social responsibility practices. Legal factors, while sometimes overlapping with political, include specific laws like discrimination, antitrust, employment, consumer protection, and health and safety regulations, which are vital for lawful business operations. The paragraph concludes with advice on using weighted averages to assess the importance of different PESTEL factors relative to a company's business and suggests consulting legal advisors for navigating international regulations.

Keywords

💡PESTEL Analysis

PESTEL Analysis is a strategic tool used to examine the macro-environmental factors that can affect an organization. It stands for Political, Economic, Social, Technological, Environmental, and Legal factors. In the video, it is presented as a framework to help businesses, especially when starting a new venture or entering a new market, to understand and assess the broader context in which they operate.

💡Macro-environmental Factors

Macro-environmental factors are the broader forces that can influence an organization, but are not typically under the control of the organization itself. The video emphasizes that PESTEL Analysis focuses on these factors, which include government policies, economic conditions, societal trends, technological advancements, environmental concerns, and legal regulations, rather than the more immediate or task-related environment.

💡Task Environment

The task environment refers to the more immediate surroundings of a company, including competitors, suppliers, distributors, customers, and strategic partners. It is in direct contact with the company and involves a two-way relationship. The video script distinguishes the task environment from the macro-environment, noting that PESTEL Analysis is more concerned with the latter.

💡Political Factors

Political factors encompass the ways in which government actions can impact businesses, including policies, stability, corruption, trade policies, and tax regulations. The video explains that these factors are part of the PESTEL Analysis and can significantly affect how a company operates within a given market, influencing aspects such as market attractiveness.

💡Economic Factors

Economic factors are indicators of an economy's performance and include elements like economic growth, exchange rates, inflation, interest rates, consumer income, and unemployment rates. The video script illustrates how these factors can have a direct or indirect impact on a company by affecting consumer purchasing power and market demand and supply.

💡Social Factors

Social factors represent the demographic characteristics, norms, customs, and values of the population within which an organization operates. The video script mentions trends such as population growth, age distribution, income levels, and cultural attitudes, which are crucial for market targeting and understanding the local workforce.

💡Technological Factors

Technological factors relate to innovations and regulations in technology that can influence industry operations. The video discusses the importance of technology incentives, innovation levels, automation, R&D activities, and market technological awareness, which can affect decisions on industry entry or product launches.

💡Environmental Factors

Environmental factors pertain to ecological aspects such as weather, climate, environmental offsets, and climate change. The video highlights the growing importance of these factors due to increasing awareness of climate change impacts on company operations and product offerings, including corporate social responsibility and sustainability practices.

💡Legal Factors

Legal factors include specific laws that govern business operations, such as discrimination laws, antitrust laws, employment laws, consumer protection laws, and health and safety laws. The video script explains the necessity for companies to understand legal boundaries to operate successfully and the importance of staying informed about potential legislative changes.

💡Weighted Averages

Weighted averages are a statistical method used to calculate the average of a set of values, where some values are given more importance than others. In the context of the video, weighted averages can be used to evaluate different countries or markets based on selected PESTEL factors, allowing businesses to compare options and make informed decisions on market entry.

💡Corruption Perception Index

The Corruption Perception Index is a measure used to rank countries by their perceived levels of public sector corruption. The video script mentions this index as an example of how some of the PESTEL factors are quantified and can be used to assess the political environment of potential markets for business expansion.

Highlights

Introduction to PESTEL analysis as a tool for mapping out the external environment of an organization.

PESTEL stands for Political, Economic, Social, Technological, Environmental, and Legal factors.

The focus of PESTEL is on macro-environmental factors that impact a company without necessarily being impacted by it.

Differentiation between internal factors of a company and its task environment, which includes direct interactions like competitors, suppliers, etc.

Suggestion to use Porter's Five Forces for analyzing the task environment instead of PESTEL.

Explanation of Political factors, including government policies, political stability, and foreign trade policies.

Economic factors encompass economic growth, exchange rates, inflation, interest rates, and unemployment rates.

Social factors represent demographic characteristics, norms, customs, and values of the population.

Technological factors involve innovations, regulations, and the level of technological awareness in the market.

Environmental factors include ecological aspects like weather, climate change, and environmental regulations.

Legal factors cover specific laws like discrimination, antitrust, employment, and consumer protection laws.

Importance of understanding legal frameworks when operating globally due to varying rules and regulations.

Recommendation to calculate weighted averages of PESTEL factors to assess the attractiveness of potential markets.

Use of quantified data from various sources like the Corruption Perception Index for assessing factors.

Practical application of PESTEL analysis for businesses considering entering new markets or industries.

Encouragement for viewers to subscribe for more business-related content and to engage in discussion.

Emphasis on the collective intelligence of the community for a more profound understanding of business topics.

Transcripts

so you want to map out the external

environment of an organization but you

don't know where to start

best tool is your answer today I'm going

to tell you everything you need to know

about the PESTEL analysis my name is

Lars and welcome to a new episode of

business - you PESTEL best steeple desk

step or the spell it analysis they're

all different versions of basically the

same thing with the exact same goal

which is to help you analyze the

external environment of an organization

this is especially useful when starting

a new business or when entering a

foreign market or a different industry

with an existing company before I go

into the actual framework

I want to clearly define the external

environment that is being examined

because PESTEL analysis does not just

look at any external factor out there

but more specifically to macro

environmental factors in order to

explain it better let's imagine a

fictional company first of all you have

the company itself everything that

exists and happens within that company

can be considered internal think about

the organizational structure of the

company the culture the employees the

management shareholders reward systems

etc closely surrounding the company

which are there for external our

competitors suppliers distributors

customers or strategic partners this

external element so to speak are in a

direct contact with the focal company

they interact with one another it's a

two-way relationship sometimes this part

of the external environment is called

the task environment now it's very

important to realize that even though

pestle is looking at external factors it

is not looking at these factors like

mentioned before pesto looks at the more

general environment the macro

environmental factors which can have a

massive impact on a company but not the

other way around they therefore have a

one-way effect rather than an

interaction like with the task

environment if you want to look more

into the task environment I advise you

to use Porter's five forces which I will

make video

very soon so now we have that cleared up

let's go into the pestle analysis

pestle is an acronym that stands for

political economic social technological

environmental and legal factors together

they make up quite an exhaustive list of

the general environment in other words

if you look at all of these six factors

combined when scanning the

organization's environment you are less

likely to miss out on any important

macro environmental factors let's go

through all of them one by one political

these factors are all about how and to

what degree a government intervenes in

the economy or a certain industry

basically all the influences that a

government has on your business could be

classified here this can include

government policy political stability or

instability corruption foreign trade

policies tax policies etc furthermore

the government's may have a profound

impact on how a nation's education

system works how infrastructure looks

like and how the health sector is

regulated these are all factors that

need to be taken into account when

assessing the attractiveness of a

potential market economic factors are

determinants of a certain economy's

performance factors include the economic

growth exchange rates inflation rates

interest rates disposable income of

consumers and unemployment rates these

factors may have a direct or an indirect

long-term impact on a company since it

affects the purchasing power of

consumers and could possibly change the

demand and supply in the economy

therefore it also affects the way

companies price their products and

services you can imagine that in a

country where purchasing power is

relatively low prices are also lower the

social dimension this dimension of the

general environment represents the

demographic characteristics norms

customs and values of the population

within which the organization operates

this includes trends such as the

population growth rate age distribution

income levels but also attitudes towards

careers health lifestyle and possible

cultural barriers these factors are

especially important for mark

tears when targeting certain customers

in addition it also says something about

the local workforce and its willingness

to work under certain conditions some

people like to distinguish these factors

by separating social factors into

demographics and cultural or

intercultural factors that explains

these different versions of the PESTEL

analysis personally I'm fine with the

social category since it combines all

factors related to the people but feel

feel free to adapt it in a way that

suits you of course technological

factors these factors pertain to

innovations in technology and the

regulations surrounding technology that

may affect the operation of the industry

in the market favorably or unfavorably

think about technology incentives the

level of innovation automation R&D

activity technological change and the

amount of technological awareness that

the market possesses these factors may

influence decisions to enter or not

enter certain industries to launch or

not launch certain products or to

outsource production activities abroad

by knowing what is going on technology

wise you may be able to prevent your

company from spending a lot of money on

developing a technology that would

become obsolete very soon due to

disruptive technology called changes

elsewhere environmental factors have

come to the forefront only relatively

recently they have become important

due to the increasing scarcity of raw

materials pollution targets and carbon

footprint targets set by governments and

pressure from NGOs like for example

Greenpeace it is important to mention

that you shouldn't be confused about the

term environmental here since we also

use that to indicate all external

factors combined environmental simply

has a double meaning here and in this

context we use it to address ecological

aspects such as weather climates

environmental offsets and climate change

basically the well-being of our planet

growing awareness of the potential

impacts of climate change is affecting

how companies operate and what kind of

products they offer this has led to many

companies getting more and more involved

in practice

such as corporate social responsibility

and sustainability so finally the legal

factors

although these factors may have some

overlap with political factors they

include more specific laws such as

discrimination laws antitrust laws

employment laws consumer protection laws

copyright and patent laws and health and

safety laws it is clear that companies

need to know what is and what is not

illegal in order to operate successfully

and rightfully even organization trades

globally this becomes especially tricky

since each country has its own set of

rules and regulations in addition you

want to be aware of potential changes in

legislation and impact it may have on

your business in the future so recommend

it is to have a legal advisor or an

attorney to help you with this kind of

things so all of these factors combine

to give a good overview of the general

environment out there which factors are

most important for your business might

vary based on the country and industry

you are in as you might be able to

imagine environmental and ecological

factors are more important to the oil

and automotive industry now for example

the software industry so if you want to

bring PESTEL into practice and actually

use it properly I recommend you to

calculate weighted averages of the

available options you have imagine you

are a European company and you're

thinking of entering the South American

markets but you don't know which country

to enter first what you could do is

select a number of peso factors that are

most important to your business let's

say we want to look at the economic

growth corruption and how intellectual

property is protected give them a

weighting of their importance relative

to the other factors and assign grades

for each factor per country in the end

you are able to give each option the

weighted average great and compare them

to each other so you might be wondering

where to get the data from you will

actually be surprised how many of the

factors that I have just mentioned in

this video are already meant

measures and given a score even

something as corruption for example is

measured by the corruption perception

index there are many helpful websites

where these factors are quantified per

country and of course I'm here to help

you out so I included some useful links

in the description down below if you

like business-related stuff feel free to

subscribe to not miss out on any of our

future videos and if you have any

question on the subject please ask them

below in a comment section because I

will try to answer as many as I can and

of course I highly encourage all of you

to help each other out as well and get

the discussion going thanks for watching

and don't forget alone we are smart

together we are brilliant see you next

time

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